7 outsourcing nightmares -- and how to avoid them

Poor communication, shortsighted contracts -- don't get derailed by an IT outsourcing agreement gone awry

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Outsourcing nightmare No. 4: Poor quality, no recourse for refund

Money Crashers Personal Finance is another company that has struggled with offshore Web development work.

A few years ago the company, which provides online educational services in areas such as credit and debt, real estate, and insurance, decided to outsource a Web development project. Intent on keeping costs down, Money Crashers decided to go with an IT service provider overseas, says Andrew Schrage, founder and co-owner.

From what Money Crashers could tell, the provider was highly qualified. "But after we paid for the job in advance, we ended up receiving results that were nowhere near our expectations," Schrage says. "To make matters worse, the [outsourcing provider] simply refused to get back to us regarding what we felt was shoddy work. After quite a few hassles, we finally gave up and couldn't retrieve the amount we paid upfront."

What Money Crashers learned is that it's not always best to have cost as the No. 1 determining factor, as the company ended up paying far more in the end.

"I'm not saying I'd never consider outsourcing a project again, but I would definitely take a different approach," Schrage says.

First, he would never again pay for any job before it's completed. Next, he would require past referrals from reputable people who've hired the service provider in the past. Third, he'd ensure the people performing the work have a clear understanding of his business.

"And finally, I would provide a specific, detailed plan of the job and discuss it at length beforehand, while also explaining the full payment would not be made until I approved the work as being up to par," Schrage says.

Outsourcing nightmare No. 5: Unexpected overhead of outsourced management

Joe Infante, a onetime IT project contractor for a specialty chemical manufacturer, offers an outsourcing lesson in one-size-fits-none.

With nearly 30 sites around the United States, most of which operated with a high level of autonomy, the chemical company was well aware that outsourcing its IT support services would be difficult. Because of the magnitude of the challenge, the company brought in one of the largest global IT outsourcers, says Infante, who is now president of IT services provider Dynamic Strategies.

Once the five-year outsourcing engagement was in place, gaps that weren't identified in the discovery phase as well as minor projects outside the normal service-level agreements were constantly cropping up unexpectedly, Infante says. The outsourcing provider had difficulty addressing these issues due to its one-size-fits-all approach.

"A decision was made to continue to supplement with independent contractors to address these smaller, one-off projects and to fill service gaps," says Infante, who declined to identify the chemical company. "The arrangement quickly became difficult to manage and the outsourcer was removed."

One of the main causes for the failed outsourcing engagement, which resulted in both lost time and increased costs, were underestimating the effort needed to manage the outsourcing relationship, Infante says.

"Where the client thought it would take one or two individuals to manage the interface with the vendor, it actually took many more of the company's resources," he says.

In addition, the client's interpretation of what it was buying -- based on what it was told by the outsourcing vendor's sales team -- wasn't interpreted the same way by the vendor's implementation and service teams.

How could these kinds of problems be avoided? "Know thyself," Infante says.

"The hardest thing for many businesses to do is properly assess their real needs and, more importantly, their current position regarding the state of IT. Properly defining these two components will ultimately determine what can/should be outsourced and which company best matches their needs."

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